Is the correction already over?

Avi Gilburt is author of
ElliottWaveTrader.net, a live trading room and member forum focusing on
Elliott Wave market analysis. Avi emphasizes a comprehensive reading of charts
and wave counts that is free of personal bias or predisposition. A lawyer and
accountant by training, he is also managing member of Gilburt Financial
Services, LLC, which provides financial markets analysis and consulting. His
Elliott Wave analysis appears frequently on sites such as SeekingAlpha, where he
is a certified contributor, and
TheTechTrader.com with Harry Boxer.

Many analysts and articles are declaring this to be a bear market, with some even telling us to prepare for a 2008-type event or worse. However, what I am seeing is a minimal number of waves in place to consider this correction complete, especially when sentiment has taken a significant turn for the worse.

This past week, the market followed through on the path we laid out last week almost perfectly. As you saw from our chart and analysis last week, we expected the market to bottom in wave (iii) of 3 between 1895-1908 on the S&P (SPX) on Monday or Tuesday (we bottomed at 1901SPX on Monday), and then rally to the .764 extension at 1952 for wave (iv) of 3. On Wednesday, the market struck just over 1950SPX, and then turned down, as expected, to our wave (v) of 3 target of 1874SPX, which it came four points shy of on Thursday.

From the bottom of wave (v) of 3, we expected a rally back to the 1.00 extension at 1931SPX, and on that same Thursday, the market hurriedly headed back to 1932SPX, where it topped and potentially provided us with a final 5 waves down for wave 5 on Friday.

So, this past week our Fibonacci Pinball method guided us almost perfectly, while most market participants were seemingly quite lost on these day-to-day gyrations. The only diversion from our outlined path was the speed with which it got here. That is what is making me question any potential bottoming.

For now, the market has provided us with a potential 5 waves down to complete this c-wave within wave iv of primary wave 3. However, as you know, I always need confirmation before I am able to say "the coast is clear." Since the bears are ready to maul anything they find, we need to be cautious.

As I said last week and all throughout this past week, until the market is able to move through 1952SPX impulsively, the pressure will remain to the downside. The potential path may still call for this being a (i)(ii) in an extended 5th wave down, which can still take us down to the 1750SPX lower end of our target zone on the 60-minute chart (linked below), or this bottom may even have been an expanded b-wave to wave 4. So, ultimately, as long as the market remains below 1952SPX, caution must still be maintained.

A breakdown very early in the coming week below the 1835SPX region would suggest this 5th wave down is going to extend down to the 1730-1750SPX region, as shown in the setup on the five-minute chart . Right now, this is the most bearish case I am seeing on the chart. The alternative potential is that we see a strong rise back toward the 1913-1935SPX region for a c-wave of wave 4, which would still provide us with another drop to a lower low.

However, if the market is able to move impulsively through the 1952SPX region in the upcoming week, you may want to put that bear suit back in the closet for now, as this correction may have ended even faster than I had expected.

As far as an alternative count on the larger-degree perspective, I still do not believe we have a completed 5 wave structure off the 2009 low, and the high we have struck is too large to be a reasonable b-wave. Therefore, my main support for the wave iv of primary wave 3 is in the 1700 region, as I have noted on the chart for several months. A break of that region would suggest that we are one degree higher in this larger-degree count, and we are in a larger-degree wave 4, with wave 3 having completed. So, again, I still expect that a rally to higher highs will begin in 2016, but I will have to be open to the potential that primary wave 3 has topped if the 1700 region breaks as support. But that is clearly not my expectation at this point in time.

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